Climate Management: How To Boost The Transition To A Decarbonized Economy

Daniel Schmid

Deutsche Post DHL, Enel, Google, Kering, SAP, Siemens – the number of companies forcing the transition to a climate-neutral value chain continues to grow. Leaders are increasingly realizing that low emissions not only help the environment, they also create clear competitive advantages, such as:

  • Improved cost control in core activities
  • A broader ability to innovate by introducing energy-efficient technologies and production processes
  • Greater acceptance among socially responsible investors (SRIs), one of the fastest-growing investor groups globally
  • Strengthened relationships with partners, customers, and consumers increasingly concerned about adherence to environmental goals
  • Becoming a more attractive employer.

These competitive advantages are now so prominent that risk management has begun to take note. And pioneers like chemical company BASF have already awarded the sustainability team a spot in the group strategy unit, since the opportunities also mean mastering a number of external risks, such as a potential increase in regulatory requirements. Recently, a large majority of G20 countries reiterated the irreversibility of the Paris Agreement. At the same time, energy-intensive companies risk being pulled into lawsuits that could threaten their existence. In California, for example, several municipalities sued 37 oil, gas, and coal companies to seek compensation for the impact that rising water levels will have on their communities.

Taking action where it counts

This shifting environmental focus has forced many companies to look beyond traditional climate management – instead of only looking internally at their own footprint, they’ve now broadened their view to include the entire value chain. It’s a lot to focus on. And to keep an eye on the trees in this vast forest, companies should define clear areas of action where influencing external emissions – known as Scope 3 Emissions – can have the biggest impact.

Where to focus varies widely depending on your industry and location in the value chain. Companies that consume large volumes of raw materials and precursors cause the most emissions early in the value chain. Meanwhile others, such as the process industry, should look both upstream and downstream since suppliers and customers create similar emissions. And in the technology industry, customers add the most emissions to the value chain. This is especially true for easily scalable products such as software, since emissions don’t really enter the picture until the products are in operation.

SAP is no different. Four-fifths of the CO2 emissions associated with our activities are produced when customers begin working with our on-premises products. Last year these emissions – known as product-in-use emissions – created 7.6 megatons of CO2. We calculated this figure based on the electricity consumed by customer data centers while running our products. To produce reliable results, we worked together with product development to model a typical system landscape. Software-specific factors for all SAP solutions were included to measure consumption and calculate CO2 emissions.

Creating a suitable monitoring and reporting system isn’t easy. The broad overlaps in the global economy mean sustainability managers must wrestle with a matrix of effects and dependencies without losing sight of the bigger picture. The Global Reporting Initiative (GRI) framework serves as a good starting point. Companies can find guidelines for integrated sustainability reports that clearly illustrate the interaction between the ecological, social, and financial impacts of their business.

The GRI recommends the Greenhouse Gas Protocol (GHG) to reliably find the sources of greenhouse gas emissions. The GHG divides Scope 3 Emissions into 15 categories that range from the emissions of purchased capital goods to the footprint of franchising. Beyond the metalevels, the protocol also provides concrete figures for continuous calculations such as how much CO2 is set free by biodiesel or aircraft fuel.

Our science-based target: 85% less CO2 by 2050

Calculations and reports are just one part of the puzzle. What to do with the results? The only answers are those that make sense within the context of your own business model. In our case, our strategy rests on three columns:

  1. Avoid emissions whenever possible, especially by relying on collaborative technologies rather than business flights.
  1. Find programs that boost efficiency, that are scalable, and that benefit our customers.
  1. Offset the remaining emissions through certified environmental projects with high quality standards. Here we look – as one example – to the GOLD standard for guidance since it includes both environmental and social criteria.

These steps support our internal goal of working entirely climate-neutral by 2025. For now, this goal only covers our own processes – up- and downstream emissions will take more time. But in June we committed to the Science Based Targets initiative to reduce all CO2 emissions by 85% in 2050 compared to 2016. Continuously. Year by year. The first key milestone is in 2025 when 40% of our emissions should be eliminated, regardless of our continuous growth. Our cloud strategy makes it possible – in 2050 we plan on being an exclusively cloud business. Our solutions will then run only on climate-neutral SAP data centers. These measures will allow us to fulfill our responsibility for achieving the two-degree target of the Paris Agreement.

SAP’s sustainability and corporate social responsibility (CSR) focus is an outgrowth of our vision to help the world run better and improve people’s lives. Learn more about our sustainability initiatives.

Daniel Schmid

About Daniel Schmid

Daniel Schmid was appointed chief sustainability officer at SAP in 2014. Since 2008, he has been engaged in transforming SAP into a role model of a sustainable organization, establishing mid- and long-term sustainability targets. Linking non-financial and financial performance are key achievements of Daniel and his team.